minimum wage

Why are some employees paid a low wage? In the run up to the UK Budget on Wednesday, some commentators are arguing that the answer is, in effect, “because employers can get away with it”. Why not, then, the logic goes, simply raise the national minimum wage (£6.50 until October for over-21s; £6.70 thereafter) to the level of the so-called Living Wage (£7.85 outside of London; £9.15 in the capital)?

Why not, while we’re at it, cut tax credits, since they are “subsidies” to employers? After all, the argument continues, since employers can pay higher wages, tax credits allow them to pay lower wages than they otherwise would and to pocket the extra. Read more

Another of the Conservative manifesto proposals to appeal to “hard-working people” concerns the minimum wage. The Tories say they will legislate “so that nobody working 30 hours on the Minimum Wage pays Income Tax on what they earn”.

This sounds like a big deal. Is it?

The main national minimum wage is currently £6.50 per hour. At 30 hours per week, this equates to £10,140 per year. The Conservatives have said they want to see the minimum wage reach £8 per hour by the end of the decade. This would mean £12,480 per year for the worker on 30 hours per week. (£8*30*52 = £12,480.)

It is also a Conservative policy that the personal allowance – the amount one has to earn before paying any income tax – reach £12,500 by the end of the decade.

So, give or take £20, the new law won’t make any tangible difference at this point. Read more

One of the arguments made by proponents of a higher minimum wage or a “living wage” is that it would raise more revenue for the Exchequer. Higher wages would, they argue, mean higher income tax and National Insurance receipts, and lower spending on tax credits; the state would pick up less of the employer’s wage bill. It is an argument that encourages some fiscal conservatives to support a wage hike.

On Thursday evening, George Osborne said that “I think Britain can afford a higher minimum wage”. Reports suggest that the chancellor would like to see the rate paid to adults over 21 years-old rise to £7 per hour from £6.31 per hour, a jump that could benefit more than 3m employees, at least according to this estimate. Read more

The astute observer will have noticed that a policy promising to detoxify the Conservative brand, improve living standards, and reduce the benefits bill, is likely to have some problems, regardless of what form the rise takes. The biggest employers of low wage labour are hardly clamouring to support a living wage. A higher minimum wage is not a direct substitute for tax credits and in-work benefits. But there is a growing consensus that the minimum wage could and should be increased – and the Conservatives seem to preparing a gran pf this traditional Labour territory. Read more

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John McDermott's blog is a modest attempt to reduce befuddlement. It
features a lot of public policy (and charts) with a smattering of
politics and culture.

John McDermott has been with the FT since 2010. He was formerly the executive comment editor in London and before that a writer for FT Alphaville in New York. Prior to joining the FT, he was a policy adviser in the Downing Street Policy Unit.